Now that the European Central Bank have tapered the quantitative easing program and the Bank of England have hiked interest rates to 0.5% the question is what next for GBPEUR exchange rates? It’s important to state both releases had the complete different effect on exchange rates than what the market was forecasting.
When the European Central Bank tapered the Q.E program, the theory on the market was that there were less euros being injected into the bloc, which means if there is less of something it becomes more valuable. In addition past history tells us when a central bank raises interest rates investors purchase that currency for higher returns on investments.
Therefore you would have thought off the back of both releases the euro would strengthen would strengthen when the ECB tapered and sterling would strengthen when the Bank of England hikes. However as both releases were public knowledge it appeared that speculators had purchased euros and sterling prior to the event, which is known in the currency world as the invent was already ‘priced into the market’.
The importance of this is to understand, sometimes it’s better to trade before the actual event and not gamble on the release. Now that the ECB and BoE key decisions are over, the question is what next for people that are converting pounds into euros or euros into pounds?
This month UK Chancellor Philip Hammond will publish his budget on Wednesday 22nd. Budgets have the potential to influence GBPEUR exchange rates by a couple of percent either way. The Conservative party are under pressure to ‘balance the books’ however the Chancellor has already announced that he is pushing back the balancing of the books to 2025 from 2020. With interest rates hiked last week to 0.5% and wage growth numbers dwindling I would be surprised to see parliament allowing any tax rises. Personally I can see the message will be uncertain times are ahead which will put further pressure on the pound.
For regular readers they will be aware that Brexit headlines will continue to drive sterling exchange rates. There are three rounds of negotiations planned up until the end of the year and UK Prime Minister Theresa May will be hoping that stage 2 negotiations will start before the turn of the year. If stage 2 negotiations begin I expect this could provide a substantial boost for clients purchasing euros as trade negotiations would have begun.
For further information in regards to GBPEUR exchange rates feel free to email me with the reason for the transfer (company goods, property purchase) and timescales you are working to and I will respond with the options available to you and the process of using the company I work for email@example.com.
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